Wednesday, March 22, 2006

Brian Rudman: Road charges no panacea for boosting business profits

In all the hoopla surrounding the launch last week of various road tolling proposals for Auckland's roads, one little detail failed to hit the headlines. None of the proposed congestion-busting measures is likely to help the local economy - or local business productivity - one iota.

And that's not me speaking, it's the boffins at the Ministry of Transport.

"Businesses in Auckland view traffic congestion as a problem," says the report. "Our analysis suggests there are positive and negative effects [from each of the proposed solutions] which largely seem to offset each other. The impacts on the economy overall appear to be relatively neutral.

"One reason for this may be that marginal costs of road pricing to businesses is generally small due to the fact that transportation costs generally are not a significant driver of business costs.

"Equally, it would not appear that the direct and tangible benefits to be gained by businesses from reductions to congestion are particularly large."

Say that again!

For years the business-owner unions have been bleating about how congestion is crippling Auckland's economy. The first stab at estimating the cost came in a 1997 Ernst & Young study which said the economic cost of congestion to manufacturing and distribution in the Auckland region was about $185 million a year and the total cost of congestion to the region was $755 million.

Pro-roaders from the business lobbies and the National Party quickly rounded this up to $1 billion and were soon claiming the full $1 billion as the cost to business. By September 2003, John Hynds, chair of something called Roads Before Rail Trust, had doubled this to $2 billion. Not to be outdone, Employers and Manufacturers Association (Northern) chief executive Alasdair Thompson topped this with a figure of $4 billion.

Last week's Ministry of Transport report, based on an economic impact assessment report prepared by Market Economics Ltd, noted earlier attempts to quantify the cost of road congestion to Auckland society, but limited its comments to the more modest end of the scale, noting estimates ranging from $730 million to $900 million. It said three points were worth noting.

First, these figures estimate the total value of time lost to congestion through the entire year, 24 hours a day, 365 days of the year.

Second, the 184,000 business trips in Auckland between 6am and 10am (when the proposed congestion fees will be levied) represent less than 15 per cent of all trips in that period and less than 25 per cent of all vehicle trips.

"Therefore, most of the value of time lost due to congestion accrues to private individuals, with more modest impacts on the wider economy ... "

Third, while the key aim of road user charging is to reduce congestion, the best that can be hoped for from the schemes proposed is "to reduce the percentage of kilometres travelled in congested conditions during the morning peak period from around 20 per cent to around 12 per cent."

However, as the report points out, nothing comes without a cost. Not only will businesses have to pay the new tolls, but modelling revealed that "a small negative effect" on the economy would be the $25 million to $89 million of consumer spending that went on paying tolls rather than into Auckland businesses. This is not offset by the time saved, because these savings, it says, are spread widely and thinly and can't be accumulated for later use. Nor are they in the form of cash.

Only if the money collected in tolls was all poured back into the Auckland economy on roads and public transport "and there were some compensation for the cost of collection" would the effect on the economy be "neutral."

The study admits "it is very difficult to determine the actual impact of time spent travelling on economic productivity, particularly in relation to private car travel". It says that even allowing for travel time costs, it appears that commercial vehicle transport costs represent only 1 to 2 per cent of total business expenditure.

Now I've never been a fan of "road pricing", regarding it as an inefficient, inequitable and costly attempt to halt the tide of more and more cars flooding our roads. The latest report and its various appendices only reinforce that view. Better still, it blows some fatal holes in the arguments of those who see it as some sort of panacea.